Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
The Business of Death by Kopin Tan
Summary: Funeral providers enjoy steady clientele, strong cash flow and their disparate industry begs for M&A's. Service Corp. International, (NYSE:SCI) the world's largest funeral provider, is valued at $4.1 billion, with 1500 funeral parlors and 400 cemeteries in 45 states and Canada. The Street darling's shares are up 90% since August, but volume is down 5.5% from Q4'06. Gross margins rose 2.3% since acquiring rival Alderwoods in 2006, and from raising per-funeral prices and introducing value-added services. But SCI's end may be near: 1) Low-cost cremation rates should rise from 30% to 50% of all funerals by 2030. 2) SCI's $14 shares equals 27 P/E vs. rivals Carriage Services (NYSE:CSV) and Stewart Enterprise's (NASDAQ:STEI) 19 P/E. 3) Debt is 3.5x assets, diminishing its takeover appeal. 4) Baby boomers are living longer. Barron's Bottom Line: The bell tolls for SCI.
SCI CSV STEI 1-yr. chart: